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If you are not familiar with the EB-5 program started in 1990 to give green cards to certain qualified investors in the United States, then you may not have been alone a few years ago. Currently, the EB-5 program has since exploded since its inception and now hits its quotas consistently each year. The program has brought tens of thousands of jobs and billions of foreign investment.

The program has two main requirements: (1) An investor must put in a $1,000,000 investment or $500,000 for qualifying new commercial enterprises; and (2) create or preserve at least 10 full-time jobs within two years of admission to the United States. Generally, most investments fall in the $500 thousand level, but both thresholds are expected to be increased soon. The businesses that only require $500 thousand dollar investment are those that are in a “TEA” or “targeted employment area.”

There are two types of targeted employment areas or “TEAs”. Either its a rural area (an area far from cities and with low population) OR an area of high unemployment areas. TEA investments require a different strategy since only businesses that work well in areas of low population or areas that are economically distressed. For example, you would not want to build a high-rise building n the middle of nowhere or a store that would require a lot of high-end traffic.

After the initial process of application, the investor and his or her family is admitted to the United States under a conditional permanent residency. Within a reasonable time after the two year period, the investor will apply to lift the conditions and obtain a permanent residency status.

The EB-5 visa is one of the most complicated types of visa applications and the entire transaction requires significant sophistication in providing the proper documentation supporting the investors application. Pasha Law PC provides general counsel services for businesses and investors applying in the EB-5 program. Contact our firm today to learn more about this visa program.

Transcript:

NASIR: Welcome to Legally Sound Smart Business!

This is Nasir Pasha.

MATT: And I’m Matt Staub.

We’re two attorneys here with Pasha Law, practicing in California, Texas, New York, and Illinois.

NASIR: Thank you for joining us, everyone.

Matt and I are in the same room again, recording in San Diego, California. Great weather right now. Great time to visit.

We are going to talk about EB5 visas – one of the most controversial immigration programs out there. It relates to businesses. It’s a great way to raise money. It’s also an excellent option for immigrants who want to come here and that have the cash to invest into an investment project. I think it’s really topical right now because there might be some upcoming changes in the law.

MATT: Like you said, it really can be kind of the best of both worlds in that it’s a way for people looking to get permanent resident green card. Foreign nationals can get that. Also, if it’s structured correctly, it’s supposed to bring jobs or create more jobs in the US. It’s seen as a win-win with the investment coming in, jobs created – everybody wins. But, as you’ll see in some of these examples, it’s not always the case.

NASIR: Let’s start with the critics.

A lot of critics say that it’s unfair for immigrants to just basically pay their way and skip the line, so to speak, in being able to enter into the country. But, of course, that may be an advantage and that’s exactly what it’s designed to do, but some critics also say that the money that’s brought in doesn’t necessarily produce the same kind of benefits and results that they’re looking for. I think that’s arguable. I mean, I’ve seen the arguments on both sides, but I think it’s also difficult to argue that that money poses no benefit. I mean, that’s money that was going into the country that wouldn’t otherwise be invested – even if it’s just $500,000 or $1,000,000.

MATT: This isn’t an immigration policy podcast.

Generally speaking, if you have a situation where two different people come into the country – one is bringing $500,000 or $1,000,000 worth and the other one is not – I mean, obviously, that proves some sort of benefit, like we mentioned before – at least, at a minimum, creating jobs for people that didn’t have jobs before.

NASIR: Yeah. So, let’s get back to the basics here.

What is an EB5 visa? How do you get one?

Basically, in order to qualify for an EB5, you have to invest either $500,000 minimum or $1,000,000 – and we’ll get to that in a second as to why there’s a difference – into a new business enterprise and, for two years, you create ten new jobs within that enterprise. And so, it’s not much more complicated than that, but there are a lot of details on actually how you execute that and a lot of nuances when you want to meet with certain exceptions.

For example, just as an example, what is exactly a new business? There are new businesses that you create from scratch or there’s new businesses that maybe you buy or develop from there and, if it’s really old, what if you restructure the whole business? Does it become something new? What if you just change the name of the business? Is that still considered a new business? There’s a lot of nuances as to how that works.

MATT: Right, and some of it is more clear-cut though. You mentioned the ten new jobs. The rules of that are ten new full-time employees must be created within this two-year period. It can’t be the family members of the foreign national coming over which that’s part of it that I don’t think we mentioned it. The full-time aspect is basically what you would expect; 35 hours or more per week classifies them as full-time.

NASIR: What’s really attractive about this particular visa program is that, once you make the investment and apply and that initial application is approved, you’ll be able to move yourself and your family within a very short period of time after your interview. Compare this to other visa programs and other visa applications, it’s really the fastest route, if you can qualify. Some people look at it as you’re bribing yourself in. It’s not much further than that. I mean, you’re paying to be able to jump the line.

MATT: Yeah, and we keep mentioning, but people look at it as kind of a pay-to-play model, but it’s creating some good, if done correctly. It’s not like they’re paying as a bribe. It’s going towards some sort of good – as long as it’s maybe not run through alternate channels.

NASIR: Let’s talk about the investment. We discuss how you need at least $500,000 – well, in some cases, it has to be $1,000,000 – and where that differentiates is where the business is located, whether it’s in what’s called a targeted employment area. A targeted employment area is defined under the immigration code. It basically says something to the effect of, if it’s in a rural area or if it’s in an area of high unemployment that matches more than 150 percent of the unemployment rate, then you can invest $500,000 instead of $1,000,000. The idea is that the areas that we want to target in order to make sure that there’s more growth there, we’re going to lower the threshold to get more people in. of course, what ends up happening is quite a number of people end up trying to find places where they only have to invest $500,000.

MATT: Of course, because you’re talking about half the amount that would be required, but the catch with that is it’s easier said than done. These targeted employment areas are more difficult to have these investment opportunities there. A rural area – it’s going to be not as close, obviously, to a big city where they’re going to have these projects or areas of high unemployment. The same sort of problem; it’s not as prone to be having these opportunities to invest. It’s a really detailed search that needs to be done, but it’s almost kind of like finding a diamond in the rough.

NASIR: Yeah, it is kind of strange and counterintuitive in that respect. It is difficult to find an investment because some immigrant investors frankly just want to make sure that their money is secure and that they’re not going to lose all their money. Their primary objective is to immigrate. But, at the same time, it would be nice to get a nice good rate of return. In fact, this kind of relationship is what really creates issues.

And so, it might be a good time to talk about how the SEC is getting involved with a lot of these EB5 investments because the thing is that, when you’re selling securities of your business and equity in your business, you’re still within the bounds of SEC. Because you’re doing it through an EB5 program, you’re still bound by all the regulations that apply to selling securities. You can’t commit fraud. You have to be very accurate and disclose the same information as if you were raising money in Silicon Valley or some other VCs. It’s not like people are just going to give away money for you. Even if they trust you, the SEC may step in, especially if the investment goes bad.

MATT: I think it’s interesting. We haven’t really talked about it from that angle, but it’s not so much people have this money to “invest” and they’re going to do it and they don’t really care how it works. I mean, the actual return on their investment is important. And so, I guess, maybe, for these individuals, some of them might not care and maybe those are the ones that are more susceptible to these fraudulent EB5 programs that the SEC is cracking down on. But, for others, even if you have a lot of money, half a million dollars is still a good amount and you want to see a return on that. Due diligence needs to be there, obviously, on the people that are running these, but they’re also going to want to look through it on your end if you’re one of these foreign nationals looking to do the investment.

NASIR: Let’s talk a little bit, you mentioned how the rural areas and the high-end employment areas about investing, how do you find projects? And so, let’s talk about some trends here and what’s going on. The EB5 program has been around for a while. Let’s see, it started in….

MATT: 1990.

NASIR: I want to say ’92, but the 90’s, I believe.

It’s gone through some changes since then, especially on how people use it. It started out what you may think. “Okay, let’s create a new business and put some money into it and that’ll boost the economy and create jobs.”

But, basically, since the program takes two years in order for you to prove that you created ten jobs, if you build a big building and the construction takes two years and you can actually count the construction workers, even if they’re only going to be lasting for two years as part of that adding ten full-time jobs. In fact, you can even get to a point where, if you build a big building and you bring businesses to the building and that creates indirect jobs, that could also be created. That’s where it gets a little more complicated because you can’t build a big building for $500,000 or even $1,000,000.

And so, a lot of EB5 funds along with other investments get pulled together. How do you pull that together? Well, there’s something called regional centers and these regional centers are created by private parties. Long story short, they basically are a matchmaker. Now, most EB5 investments and programs are real estate buildings and they go through the regional center. I have a very strong opinion that that’s not the best way to do it because I think, for me, if I’m investing my money, I’d want to make sure I have a little bit of understanding of the control and the management of it. But, if you really want a more passive route, that might be the way to go.

MATT: The reason that it’s done this way is the actual investors that are trying to qualify to this EB5 program, it has to be an investment of equity. It can’t be a loan. That’s a key distinction and that’s why these regional centers get pulled into play. The investors end up giving their money as an investment to these regional centers which turn around and then do loans for the actual projects. That way, it’s less of a risk for the regional centers, but still can qualify these investors under the program.

I think, as you mentioned, that’s not the way that you would recommend. It makes sense. You’re just adding another component to this whole equation where it’s not necessary. But I can see why it’s been set up the way it has.

NASIR: You’re exactly right, Matt. In fact, that is how they get around. You mentioned that loan rule. When you make an investment, it has to be a committed investment. You can’t make it so that you have a buyback option or think creatively.

In fact, they require you to put the money or invest the money prior to actually filing your application. For an immigrant investor, it might make you a little anxious because, if you think about it, what if your application – even your initial application – is denied? Now, your money is invested into a company. There’s no guarantee that you’ll be able to get it back any time soon. Even if they have the money to buy it back, they don’t have the obligation to do so. There is a little risk there. It doesn’t work for all companies.

But, if you can find an investment that’s willing to put your money in escrow for a year, that is an acceptable route – so long as it’s an escrow and, as soon as the application is accepted, then it gets released; if it’s denied, it gets returned to the investor.

The problem with that is there’s not a lot of investments that will allow you. What kind of company is willing to wait a year or more for your application to be approved until it’s done? But it’s not uncommon, for sure.

MATT: Yeah.

NASIR: One of the other reasons EB5 has received some recent press is because of Jared Kushner which is pretty interesting. I don’t know if you heard about that, Matt.

MATT: Yeah. Well, was it Kushner? We should explain, Kushner is the son-in-law of Donald Trump. I think Jared Kushner was the one that kind of threw out the project h was doing which is the Trump Bay Street Project. I believe it’s finished – the high-rise in Jersey City. He was kind of leveraging the Trump candidacy with this project which brought some scrutiny. But, also, now the building’s finished and he’s turned what was 190 million in loans, 50 million of which was through the EB5 program, and was now looking for about 250 million loan to cover the 225 million cost to build the luxury Trump on Bay Street.

NASIR: Actually, a lot of the big towers that go up in these cities, a lot of people aren’t aware, people say they’re a bunch of Chinese investors and so forth, but that’s the reason why.

In fact, China Mainland represents – I think the last statistics I saw was – like, 90 percent of the applicants or something crazy like that. Each country has a quota. If you’re investing from China Mainland or even Hong Kong, the line is much longer. If you’re in that, they heavily advertise in those countries. Most likely, if you’re immigrating from one of those countries, you’re already aware of the EB5 program and you’re already aware that it’s going to take a long time for you to get through that. But, if you’re not in one of those countries or if you’re a business that are looking for investment, finding investors that are not in China Mainland are actually more advantageous for that reason.

Back to Jared Kushner, what was going on was, when they were advertising for some of those EB5 funds, they were using Jared Kushner’s name. Of course, Jared Kushner is related to the White House and there was this innuendo that said these investments are more likely to be approved than otherwise.

But, in actuality, in fact, the person that was appointed to review these applications, I saw an interview with him. He’s a Wall Street guy in the sense that he knows now – unlike his predecessor – he actually looks at business plans. He jokingly made a comment saying something like, “When most companies provide their business plan, they don’t even provide a performa,” which is just crazy to me, but it kind of just shows you some of the scrutiny that people have against EB5 programs is the loose regulations of it – so much so that, when people provide a business plan, they’re not really documenting things that much and that might be the culture that might be changing or shifting nowadays.

MATT: I do need to correct what I said before. It was Jared Kushner’s sister that spoke about it during the trip to Beijing. They were looking to raise another 150 million.

NASIR: He was still involved. He had some ownership in the company or something to that effect. You know, you can check your own facts by researching them.

MATT: It was Kushner Companies.

NASIR: Okay, I see. Obviously, name is related.

So, getting back to the actual timeline of it, I’m not sure if we mentioned this.

First, you make your investment. You really have to vet the investment properly. You have to engage your attorneys. You have to engage financial guys, be able to scrutinize their business plans, especially if you’re going through a regional center. See their history and do some background checks even. Attorneys can do that for you as well. Make your investment. Do the application. You have to have an immigration attorney to do that as well.

Then, you basically wait for acceptance. There’s different timelines, but I think, right now, it’s at twelve to fifteen months or so. Within that time, once it’s approved, you’ll be able to move after your interview – just like any other Green Card status. You’ll get a conditional Green Card for more than a couple of years and that can be extended, too, and often it. Within that time, you grow the business – whether it’s you and your investment group. Within two years, you apply to release that conditional Green Card and make yourself a permanent Green Card. That conditional Green Card, by the way, you have the same rights as someone with a permanent Green Card as well. You get to bring all your family. It’s a pretty nice gig.

Once you get past the first milestone which is that initial application, the rest is just a matter of a lot of waiting and paperwork, but you’re in the United States. It’s a good position to be in.

MATT: Yeah. As we mentioned before, it’s not just the person making the investment. It can be their family as well can come along. I think that’s obviously the big thing – just getting to the US. From there, making sure everything is done correctly so you can stay.

NASIR: There might be some changes, though.

We’re recording this in October of 2017. Trump and his predecessors – even Republicans before them, too – were saying that they want to make some restrictions on EB5 visas. There’s basically two things that we expect to come down. It’s that they’re going to raise the threshold of $500,000 and $1,000,000. They’re going to increase that. We’ve seen numbers – what was the last number that we saw from Trump?

MATT: 1.35?

NASIR: Yeah, it could go up all the way to that. We’ll see. It’s hard to really predict what’s going to happen.

Second is how you define target employment areas.

By the way, target employment areas are usually certified by the state. For example, California, as a whole system, basically, you tell them the location and they’ll actually send you a certification letter based upon a certain previous year’s unemployment data. If you feel like it’s something different, then there’s another procedure to do that. Some states have that procedure, other states you actually have to produce your own research and hire an expert to produce to the immigration office. How they define a targeted employment area and the restrictions on that is going to be probably restricted as well. That means that, if you’re on the borderline, I don’t know if they’re going to increase. Instead of 150 percent of unemployment rate, it has to be 170 percent – I don’t know what the changes are going to be, but somehow that’s going to be restricted. More likely, it’s going to be a lot easier if you can get into that million-dollar threshold than if it was a $500,000 threshold.

MATT: Right, exactly. It’s interesting given his previous comments about immigration and stuffing it all together. I mean, it’s not surprising.

NASIR: You would think, from Trump’s rhetoric, he would want to continue the investment. Obviously, he’s very familiar with real estate and, without even knowing this as a fact, I assume that he’d use plenty of EB5 money for his previous projects, so I’m sure he’s very familiar with the program.

MATT: The one we mentioned before, that’s what? 50 million of that? Yeah, I would assume that other properties probably have benefited from it as well.

NASIR: Let’s talk about some nuances. There’s a few that I wanted to touch on.

Let’s talk about new enterprise. What’s interesting about this – or I should say, “creating ten jobs” – if you actually invest in a troubled business, there’s actually a definition of a troubled business, but the idea is that, if it’s a troubled business and you actually maintain ten jobs, you qualify for it in the same way. the idea is that it’s a troubled business so most likely those ten jobs are going to go away anyway. If you maintain them, it’s the same as adding ten jobs. A troubled business is defined pretty specifically but, basically, it has to be a business that’s been in existence for at least two years and that, for the proceeding 12-month period or last 24-month period, there’s definitely been a loss, but also that loss is for at least equal to 20 percent of the troubled business’ net worth prior to the loss. And so, in summary, all you’re looking for is a business that is running a loss for the last two years or so and it represents 20 percent of what the business would be worth if it wasn’t losing money.

Those businesses may be more difficult to find, especially right now, but they’re definitely out there. I’ve seen them myself. The hard part is, of course, you’re investing money into a troubled business. You’d want to find out, “Is the business a troubled business because of bad management or is it because it’s a car wash in a bad location or is it something that is actually in your control that you can actually fix?”

What’s an old business that’s out of business now because of the internet or something?

MATT: Newspapers.

NASIR: Yeah, like a newspaper business.

MATT: Well, not officially.

NASIR: Not yet.

MATT: AOL.

NASIR: AOL.

MATT: Because of the internet.

NASIR: Actually, you heard AOL Instant Messenger finally closed.

MATT: Well, yeah, that’s what made me think of it. I don’t know if it’s done yet.

NASIR: I thought I did.

MATT: Well, they announced it was going to.

NASIR: All I know is I lost all my friends. Those were the only friends I had.

I think, lastly, it’s defining a new commercial enterprise and that’s the term – “new commercial enterprise.” It sounds strange. But, basically, if the business was created after 1990 – November 29, 1990 – it’s considered a new commercial enterprise. If it’s older than that, then you would need some significant restructuring. Those nuances may not be appropriate to cover in this podcast because this is kind of just an overview, but it requires a significant restructuring – not just the legal structure. You can’t just change the name. It’s a matter of taking a gas station and adding a car wash and you still have to add those ten jobs, just like any other new enterprise.

And so, that’s one thing to look at – the type of business – because you don’t necessarily have to create your own business from scratch. You can actually invest in an existing business so long as it creates those ten jobs.

MATT: I think the takeaway from this is it’s a great opportunity, but it’s not something you can just necessarily jump into. As we’ve pointed out, there’s a lot of rules, a lot of very specific rules, and different paths you can go down. It’s a good thing that the first step is really trying to, like you said, vet what the investment is, then make the investment. And then, you go through with everything else. You really have to think. That should make people think about it before they actually try to go through this plan as opposed to filing the application first and then making the investment. Hopefully, the reason this is set up the way it is, it’s to prevent people from just trying to get this free pass. They really have to think about it.

At the end of the day, it’s money of theirs that’s on the line. Even if you’re extremely wealthy, it’s still a million dollars is not chunk change.

NASIR: Unless you have a billion dollars.

MATT: True, then it might be.

NASIR: Then, it’s just a hundredth.

MATT: Then, you probably don’t live in the US because it’s not worth it.

NASIR: Well, I mean, that’s the thing. A lot of people want a second home or an escape from their current country and that’s often what’s going on.

MATT: And that’s why you’re here in San Diego.

NASIR: That’s very true.

MATT: Escaping from…

NASIR: The fumes of Houston.

Okay. Well, I think that’s it.

Thanks for joining us, everyone!

Tune in next time when we talk about Matt’s fashion sense.

MATT: All right, keep it sound and keep it smart!

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